Introduction

Tax harmonization has been a very thorny issue for the EU: witness the vehement argument in the 1980s when Margaret Thatcher, British prime minister, flatly declared that tax harmonization was not EU business, only to be told by Helmut Kohl, German chancellor, and Jacques Delors, Commission president, that it was indispensable for EU integration. Such a bold statement cannot be treated lightly, since tax harmonization remains one of the few areas where new EU legislation requires unanimity: hence a single EU member state (MS) can frustrate any new initiatives in this domain.

Tax harmonization is the agreement and application of common rules for taxation across the entire EU. This involves three separate aspects: the object of taxation – that is, what is to be taxed; the tax base – that is, agreement on the calculation of what is to be taxed; and harmonization of rates. The first purpose of this chapter is to clarify what they mean. The second is to consider to what extent tax harmonization is necessary for the EU. And the third is to assess the progress the EU has achieved in this respect. The chapter finishes with conclusions.